Wednesday, March 15, 2006

GCC bourses dive :: Trade Arabia
Ports are on the bubble

It's always dangerous to assume that a sequence of events implies cause and effect. But if we learn - from the ports deal - that America is more isolationist than recently believed, and this is followed by a rising threat of expanding economic dis-integration (only symbolized by the Boeing deal), what is a stockholder to think about the value of the paper she holds?

Now combine those events with an institutional environment in which investors acquire shares in the expectation that they get to keep any upside and the government will take the downside. What you have is an environment where bubbles grow until they reach an inevitable and sudden demise. Death of bubbles is inevitable, only the timing - humble investor - is unknowable.

In her usually colorful way, Secret Dubai describes the "I'll take the upside, you'll take the lowside" environment that GCC citizens inhabit.

Although there are claims to the contrary, nonperforming loans of at least some UAE nationals are still routinely paid off by the government. UAE banks are used to the government paying off bad loans. That, the careful reader will have already realized, only fuels the bank's readiness to loan money to punters. Double bubbles, boil and trouble.

Khaleej Times - Circuit breakers tripped, margins called. Geopolitical tensions (Iran). "The correction, which began on February 26, has trimmed market capitalisation by about a quarter, or more than $260 billion."

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UPDATE, March 17: Marginal Revolution takes a look and offers a link. See also these charts for the SA, AE, QA markets: the drop certainly looks dramatic.

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Blogger gsm_73 said...

Does it not resemble 'Moral Hazard' identified after the Asian Contagion?

1:30 PM  
Blogger John B. Chilton said...

Exactly - as my "moral hazard" TAG suggested.

1:54 PM  
Anonymous Anonymous said...

And oddly I just had a comment on D article in the FT last week.

An item I noted, that I think is among the longer term risks to a proper investing culture emerging (ahem, I am an optimist underneath it all), is Kuwait resorting to using State investment funds to support the market. The article I read gave no sense as to the magnitude, but certainly I find this to be a disturbing move.

A side item, I noted some surprise that the Maghreb bourses tumbled a bit, although looking at Casa today its right up again, nearly 3%. I was surprised to see any correlation between the two. Although a lot of reporting on this is talking about the "Arab Bourses" the contagion looks like Gulf plus Levant plus Egypt. With us Maghrebines happily being ignored for better or worse.

Lounsbury, 'Aqoul

8:09 PM  
Anonymous Anonymous said...

Ahem, that was supposed to be on Dizard's article The Middle East offers fertile soil for value hunters....

Clumsy fingers.

8:13 PM  

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